As a forex trader, you're already familiar with the volatility of the currency market. This rings truer than ever as major world events like the ongoing pandemic and the Russia-Ukraine conflict continue to impact the world of finance.
With this in mind, you may be considering revamping your trading strategy. Below are a few new tactics you can try to keep up with this year's ever-dynamic forex market.
Today, The Balance emphasises that keeping on top of market news is made more crucial. When news trading, keep your eye on a few currencies of interest. The US dollar is a good example given its contribution to many major currency pairs. In this case, you'll anticipate economic data releases from the American government. From here, discern a period of consolidation or uncertainty ahead of a big number and trade upon the breakout of your assets. This can be done over several days at most, making this strategy well suited for short-term traders.
In volatile markets, statistical charts like Bollinger Bands can help more accurately define where support and resistance levels may be found. This tool uses a volatility channel to place lines above and below a central measure of price, which acts as a simple moving average. The width of these lines or bands indicates the volatility in a given market, with a thicker band signalling more volatility. The additional two bands act as standards of deviation, so your interest should lie in price actions that near the edges of a band.
In swing trading, you focus not on the long-term value of a currency but instead on peaks and dips in momentum. First, you use technical analysis to discern when a "swing" is likely to occur, and then hold overnight positions as the market corrects itself to make a profit. From here, you can cash out once your chosen currency pair hits a level of resistance — or short it if you believe its price movement will take on a downward trend. This can be accomplished over the course of several days or weeks.
As with many other things, your proficiency with new forex trading strategies will be much improved with practice. This trading demo on FXCM exemplifies how you can do so without putting any capital at risk. This tool accurately simulates live market conditions without putting any actual capital at risk. By familiarising yourself with the technical analysis tools you need and honing your skills in timing and indicator interpretation to the best of your ability, you'll be able to maximise the benefits these strategies promise as soon as you hit the market.
However, there are also a few things you need to keep in mind with these tactics. When news trading, you need to carefully assess the potential impact of economic reports to avoid your trades going awry. When using Bollinger Bands, start out with its default settings before increasing the number of standard deviations you employ — and the complexity of subsequent analyses. Finally, swing trading is best done during weekdays: the market changes that occur during the weekend can alter price gaps and lessen a swing's impact.
When learning new strategies, it's important to do so carefully. As discussed in Jamie Hill’s FX strategy article, this will effectively place you not as someone who trades merely for the excitement of it, but as a forex trader using deep analysis to bolster profits. More importantly, you'll be fully prepared for whatever 2022 has in store for the currency market.